The Nifty which opened with a gap down extended its decline after the board of directors of Infosys accepted Vishal Sikka’s resignation as CEO and MD. The index bounced back from its 50-days exponential moving average (DEMA) and made a ‘Hammer’ like pattern.
The index broke below two crucial support levels of 9900 and 9800 in trade today but 50-DEMA lend support to the index which pulled the index back above 9800.
A classic 'Hammer' is formed when the index trades significantly lower than its opening price for the most part of the trading day but manages to recoup losses and closes either above or near its opening level.
The candlestick pattern will have no or a tiny upper shadow, a small body, and a long lower shadow which signifies buying at lower levels which pushed the index upwards.
The Nifty50 rose to an intraday high of 9865.95 which was also the highest point of the day; hence there was no upper shadow. It witnessed selling pressure which dragged the Nifty lower towards 9,783, but last minute buying ensure the index to close above 9,800 which made a long lower shadow.
However, traders should not make decisions based on one candlestick pattern and wait for further confirmation on Monday as Friday's price action was largely weighed down by Infosys.
Investors lost a little above Rs 22000 crore in market cap as Infosys cracked 9.6 percent lower to Rs 923.10. It fell little over 13 percent to a fresh multi-year low of Rs 884.40.
The last minute buying in the market is a positive sign which suggests that the market could be bottoming out and investors can use buy on dips approach next week. It has to cross and hold above 9,880 to witness an up move towards 9,928-9,950 levels.
“The Nifty50 registered a Hammer formation on candlestick charts after retracing exactly 62% of its last leg of the rally from the lows of 9685 – 9948 levels. Usually, this kind of formation especially after bouncing from important Fibonacci retracement level paves the way for a pullback rally,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“The rally from the Friday’s low of 9,783 should logically extend beyond the recent top of 9948 levels registered on 17th of August and should get itself extended further into the zone of 9960 – 10046 levels,” he said.
Mohammad is of the view that if we are cross 9,948 levels in the next couple of days then we can adopt a buy on dips kind of approach at some point in next week.
On the options front, maximum Put OI was seen at 9800 followed by 9500 strikes while maximum Call OI was seen at 10,000 followed by 10,100 strikes.
Fresh Call writing in all the strike from 9800 to 10000 strike which may continue to restrict any upside movement while Put unwinding in all the strike from 9600 to 10000 is giving a negative stance on an immediate basis, suggest experts.
India VIX moved up by 1.60 percent at 14.57. “Comparatively higher volatility is causing the high wave swing in the market and till VIX does not stable below 13-12.50 zones, it would be tough for the market to continue its smooth ride,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.
“The Nifty50 index witnessed a sharp recovery from lower levels but finally closed the day on a negative note with the loss of around 65 points. It formed a Hammer candle on the Daily chart and respected to its 50 DEMA but sustained supply is being witnessed at higher zones,” he said.
Taparia further added that the index has to now cross and hold above 9,880 to witness an up move towards 9,928-9,950 zone while on the downside supports are seen at 9,775 and then towards 9,710 levels.
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